Usually, you may not claim a tuition credit for expenses paid (or reimbursed ) by tax free money (e.g. scholarships, grants, VA benefits or employer reimbursement). Employers are allowed to reimburse employees up to $5250 tax free. Anything over that is taxable and included as taxable income on your W-2. So, any expenses over $5250, including books, may be used to claim a tuition credit.
Q. What if you pay tuition one year and are reimbursed the following year?
A. You have a choice (actually a tax loop hole). You can claim nothing on your 2021 tax return, since it will be reimbursed in 2022. Or, you can claim a tuition credit, because you are out-of-pocket. But then, you have to report the reimbursement from your employer as taxable income on your 2022 tax return.
It may get a little complicated reporting the 2022 reimbursement next year. It's best explained by example. Lets say you paid $6000 in tuition, in 2021, and use $4000 of that to claim the tuition credit ($4000 is all you need to get the maximum amount of credit on the American Opportunity Credit).
In 2022 you employer reimburses you $6000. On your 2022 W-2 (received in Jan 2023), he shows $5250 (the maximum allowed) of tax free educational reimbursement and $750 of taxable reimbursement. $750 will have already been included in box 1 of your W-2 as taxable income. You now have to report $3250 (4000-750) as additional taxable income on your 2022 return. $3250 goes on line 8z of schedule 1 as "Taxable Reimbursement". TurboTax can not automatically pull that from your w-2. You have to enter it manually. In TurboTax enter at::
Federal Taxes Tab
Wages and income
Scroll down to:
--less common income
---Misc Income, 1099-A, 1099-C..... (Press start)
----On the next screen, select Other reportable income
-----Two screens in, type Tuition reimbursement and $3250
Alternatively (using the numbers in the example), you can use only $750 to claim the tuition credit in 2021. Then, you will have to do nothing with your 2022 return.
